Lewis v. BT Investment Managers, Inc. – Oral Argument – January 15, 1980 (Part 2)

Media for Lewis v. BT Investment Managers, Inc.

Audio Transcription for Oral Argument – January 15, 1980 (Part 1) in Lewis v. BT Investment Managers, Inc.

del

Warren E. Burger:

Mr. Griswold, you may resume.

Erwin N. Griswold:

First, I would like to make a brief further answer to what in effect were two questions closely related from Justice Stevens.

This case does not involve a question of who makes a sale or what business is done.

This case involves an aspect of federalism.

The difference between Paine Webber and the appellee here is that the appellee is a bank, a bank holding company.

And the whole history of this country for 200 years shows a constant struggle on the highest political level to maintain the position of the States with respect to the handling of money.

And that’s what this case is about.

This is — both the Congress and the States have passed legislation in this area over many years, and the statutes which are involved here are statutes of that type.

Now, I was referring to the particular provisions in the Bank Holding Company Act.

The first one of which is that a bank holding company cannot own a bank in a State unless the State says it can.

The second one is that no bank holding company may — may own any company which is not a bank, and these things are not banks, this investment advisory and it’s strange to say, the trust business is not a bank.

And then, there comes — well, through these provisions, Congress has formulated a national policy in this area.

This case would never have arisen were it not for an exception to Section 4 of the Bank Holding Company Act which is in 12 U.S.C. 1843 (c) (8) and is printed on page D2, Appendix D of the appellant’s brief, and it says, “Hence, such prohibition shall not, with respect to any other bank holding company, apply to shares of any company the activities of which the Board,” that’s the Federal Reserve Board, “after new notice, an opportunity for hearing has determined by order or regulation to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.”

Now, the appellees contend that in substance by this exception, Congress has undone much of which — what it so clearly did and intended to do in the basic parts of the very same statute.

I do not think that this exception needs to be construed or should be construed to authorize any such result to authorize in effect the introduction of a new cutting edge of expansion from outside the State when the whole tenure of the statute, in its history, shows that the basic policy choice made by Congress was to protect the States from expansion by outside bank holding companies except to the extent that the State chose to authorize such expansion.

The basic policies established by Congress are clear, no bank outside the State, no subsidiary which is not a bank.

This gives color to, and helps to define the scope of the exemption given in (c) (8).

To use the words used by the Court in another text, this basic — another context, these basic prohibitory provisions provide emanations and a penumbra which helped to determine the intent of Congress which was expressed in (c) (8).

My suggestion is that (c) (8) can be given full scope and effect by construing it to have a territorial limitation, that (c) (8) authorizes the Board to authorize a bank holding company to own a corporation which is not a bank to provide services to the bank holding company in a State where the bank holding company is authorized to own a bank.

But that it should not be construed in a wide open way to authorize the bank holding company to proceed in the other States — all other States without a limitation.

Byron R. White:

Is that the — is that the basis — is that the construction the Board put on it?

Erwin N. Griswold:

The Board has not — the — the Board considered this case up to the point where Florida passed the statue and then the Board said because Florida says, ”We can’t go there.

We will not authorize it.”

Byron R. White:

Well, that’s — that’s your position.

Isn’t that —

Erwin N. Griswold:

I believe that they —

Byron R. White:

— isn’t that your position?

Erwin N. Griswold:

I believe that the Board has authorized some bank holding companies to have this type of subsidiary outside the State.

I’m contending the Board was wrong.

I know of no judicial —

Byron R. White:

Well, yes.But the Board might have — might do this in a State that didn’t prevent it.

Erwin N. Griswold:

It might do it in the State which didn’t prevent it.

That would —

Byron R. White:

And you would say that if it didn’t in the State that did prevent it, it was right.

You would — you would —

Erwin N. Griswold:

If it did it in a State which —

Byron R. White:

— you would say the Board was quite right in — in denying permission here because Florida prevented it.

Erwin N. Griswold:

Yes, I would say that they — they were, but I would also say that the Board has no power under this statute if properly construed because the statute ought to be construed to authorize the Board to allow the subsidiary assisting factors only in States where the bank holding company needs those factors in order to carry out its banking business —

Byron R. White:

So you’re —

Erwin N. Griswold:

— in those States.

Byron R. White:

— so you’re disagreeing with the administrative construction of the statute.

Erwin N. Griswold:

Not — its — there never has been a clear administrative construction by way of decision —

Byron R. White:

But you said you thought the Board was wrong a moment ago.

Erwin N. Griswold:

I — I think that in those cases where the Board has authorized this outside of the State where there is a bank that properly considered judicial authority, I might hold that the Board was wrong.

As Justice Cardozo said in the Panama Refining case, “The meaning of the statute is to be looked for not in any single section but in all the parts together and then their relation to the end in view.”

And I would call attention to the fact that in the recent case of (Inaudible) against Boyle involving jurisdiction of appeals from the District of Columbia Court of Appeals.

The — this Court did exactly that, yet applied a — a territorial limitation to a statute which was otherwise quite clear.

Accordingly, we think that the judgement below was erroneous and should be reversed.

Warren E. Burger:

Mr. Warden.

John L. Warden:

Mr. Chief Justice and may it please the Court.

I should point out initially that the statutory provision that Dean Griswold was just referring to, which is at D2 of the appendix of the red brief, contains no territorial limitation.

It has never been construed by the Board to contain the limitation that Dean Griswold contends should be read into it.

Indeed, until a few minutes ago, I wasn’t aware that that argument was being made in this case.

And if that construction is adopted by the Court with no basis whatsoever, it will result in invalidating literally hundreds of substantial acquisitions made by bank holding companies with the approval of the Federal Reserve Board, not disturbed by any judicial proceeding for many years.

Byron R. White:

What do you say — I — I suppose you will get to it but what would you say the Board’s error was in denying permission here?

John L. Warden:

Well, Mr. Justice White, the Board has construed this Court’s decision in Whitney —

Byron R. White:

Yes.

John L. Warden:

— as requiring it to give effect to state law in ruling on applications whether — whatever the constitutionality of the state law.

In other words, it will not determine the constitutional question.

It remits the parties to the Court for that purpose which is why this case was instituted in a three-judge District Court in Florida and brought up here as it has been.

John L. Warden:

So the Board’s final action was, “We would have approved or we would likely have approved this application but for the recent one, hastily enacted Florida statute —

Byron R. White:

But do you think the Board also — or — or did it or perhaps it didn’t.

You don’t think there’s any element in the Board’s decision that — to the effect that Congress consented to this Florida’s — the kind of Florida statute?

John L. Warden:

No, I do not.

The Court noted in its opinion in Whitney that the Board had at that point, considered that Section 7 of the Bank Holding Company Act permitted States to preclude the doing of business by bank holding companies entirely to preclude that form of commercial organization.

We don’t have to reach that question in this case.

Of course, since Florida permits the doing of business by bank holding companies, it permits that form of commercial organization.

But I don’t believe there’s any indication that the Board reads Section 7 as permitting an — and otherwise unconstitutional discrimination against out-of-state firms.

Byron R. White:

Well, it is if the Congress permitted it.

John L. Warden:

No, I said and otherwise, and they don’t read Section 7 as — as constituting a congressional validation of otherwise unconstitutional discrimination against out-of-state firms.

I know of no suggestion to that effect in the Board’s (Inaudible).

And they made no such allusion in their opinion in this case.

Secondly, I would like to note that with respect to the question of whether interstate commerce is involved in this case at all, which Dean Griswold addressed, I do not notice that contention made in the brief filed on behalf of the appellant.

And the fact that the business that Bankers Trust proposes to engage in would be conducted in interstate commerce was not disputed by Florida before the three-judge District Court and in fact was conceded.

Byron R. White:

Let me — I just want to clear up one more — one more point.

Do you think the Board has — has addressed that either way the question of congressional consent in a —

John L. Warden:

To this — to this sort of statute —

Byron R. White:

Yes.

John L. Warden:

— I did not.

Byron R. White:

So — so, you don’t — you can’t relay on Board construction that there is no consent.

John L. Warden:

Well, that is correct.

And I — I must say I don’t think that — as I shall approach that part of the argument later that there’s any need for administrative expertise —

Byron R. White:

I understand.

John L. Warden:

— in determining that question.

Byron R. White:

Yes, I know you — I know you do.

William H. Rehnquist:

Well, when you say there’s no need for administrative expertise, you mean you don’t rely in any preemption doctrine under the Bank Holding Company Act, you simply rely on what — or what are called reversed commerce clauses from this Court?

John L. Warden:

That is correct, Mr. Justice Rehnquist.

William H. Rehnquist:

Because the Commerce Clause itself simply grants Congress the authority to rate late commerce among the several States.

John L. Warden:

Well, that is correct, Your Honor, but the — though — the consistent —

William H. Rehnquist:

A lot of —

John L. Warden:

— line of authority in this Court has been that it has negative implications of its own force for state statutes that discriminate against interstate commerce.

There is no federal statute involved, for example, in Philadelphia against New Jersey, at least of which I’m aware.

And I believe that Dean Griswold has conceded in his brief on behalf of the Conference of State Bank Supervisors at page 9, Note 4 that the Commerce Clause has exactly the same scope when relied upon to strike down discriminatory state regulation as when relied upon to justify affirmative congressional regulation.

Now, to continue briefly on the interstate commerce question, the three-judge court addressed directly the question to counsel for the State of Florida below whether “the defendant made any serious contention,” I quote that, that Bankers Trust would not be engaged in interstate commerce in the business it proposes to conduct and counsel replied, and I quote, “The defendant does not.”

I might add that a New York based financial institution operating these businesses in Florida by means of local officers directed from New York and affecting the flow of capital funds into the national capital market is inescapably involved in interstate commerce.

The second point I would like to make is that this case does not involve banking or any issue of competitive equality between state and national banks or any question of the dual regulation of banks.

The distinction between the business of banking and the businesses here involved, trust services and investment advisory services is recognized not only in the Bank Holding Company Act by Congress, which I shall address in a moment, but right on the face of Florida statute, Section 659.141 which expressly discusses as discrete businesses the business of banking, the trust business and investment advisory services.

Byron R. White:

There might be lesser included offenses though, wouldn’t it?

John L. Warden:

[Laughs] I think not.

As we pointed out in our brief, Your Honor, banks may do trust businesses and investment advisory businesses but so to many other sorts of commercial institutions —

Byron R. White:

But — but they’re not —

John L. Warden:

— and indeed —

Byron R. White:

But they’re not unrelated to banking.

John L. Warden:

They are not unrelated to banking.

Byron R. White:

Otherwise, it may be — your clients wouldn’t be interested.

John L. Warden:

That’s quite right.

Byron R. White:

Yes.

John L. Warden:

And then otherwise the Federal Reserve Board wouldn’t have given —

Byron R. White:

(Voice Overlap) —

John L. Warden:

— the affirmative indication of that but I point out that not only the Paine Webber has engaged in investment advisory services but other forms of non-deposit trust companies such as what we proposed to set up here, engaged in trust services and so do natural persons who have no banking powers whatsoever.

I think we use the illustration in our brief that the manufacturer of aircraft doesn’t become the manufacturer of automobiles because it’s carried on by General Motors.

Now, I should also point out because I thought it might have been a bit unclear.

Well, I’m talking about 659.141 that that statute itself bars us both from the investment advisory business and from the trust business, irrespective of — of 660 because 659.141 keeps us out whether we have a local incorporated subsidiary or open an office of an out-of-state subsidiary.

John Paul Stevens:

But, Mr. Warden, if —

John L. Warden:

Yes, sir.

John Paul Stevens:

— the District Court was correct in holding 659.141 unconstitutional, why would we have to go ahead and assume — assume we agreed with them just for purposes of discussion, would — would we still have to go ahead and consider the other statute, and if so, why?

John L. Warden:

I think you would, Mr. Justice Stevens, because as — as Dean Griswold suggested in his brief, it appears that the lower court may have read 660.10 as of its own force precluding Bankers Trust New York Corporation and Holding Company from complying with its terms by incorporating a local subsidiary.

Now, the statute doesn’t say that on its face.

John Paul Stevens:

Well, then, why should the —

John L. Warden:

Yes,

John Paul Stevens:

— the federal court assume — you know, you certainly don’t strain to give the statute —

John L. Warden:

Well —

John Paul Stevens:

— unconstitutional reading.

John L. Warden:

Absolutely not, Your Honor, but Florida has not yet represented or conceded in this proceeding that the statute will not be so construed and enforced if Florida does so or if this Court rules that that is not what the statute means, then Section 660.10 insofar as that was the basis for the lower court’s decision does not have to be reached by this Court.

William H. Rehnquist:

Well, the Florida courts have never had an opportunity to interpret the law.

The District Court originally abstained and you appealed saying they shouldn’t have abstained.

John L. Warden:

Well, at that point, Bankers Trust took the position that there was nothing unclear about the statute.

William H. Rehnquist:

But to — to say that Florida hasn’t yet conceded, very, very likely the executive branch in Florida or the people representing the state banking authorities aren’t in a position to make a final determination.

That’s for the Florida courts, I would think if its — Florida’s (Voice Overlap) —

John L. Warden:

Well, if I may, Your Honor, I think that if the lower court did construe the statute the way Dean Griswold suggest it may have, the lower court clearly erred in that question of state law, is so clear that it should be disposed of by this Court.

Potter Stewart:

You’re talking about —

John L. Warden:

But —

Potter Stewart:

— Section 660.10?

John L. Warden:

— that is — yes, I am, Mr. Justice Stewart.

But that will be a necessary part of this Court’s decision if it is going to set aside the declaration below that 660.10 is unconstitutional on the ground that it prevents of its own force, Bankers Trust from complying with it.

But let me — let me —

Byron R. White:

That’s a suggestion that — that we wouldn’t know more about the Florida law than the District Court.

John L. Warden:

Well, it’s a suggestion, if you please, Mr. Justice White, that you can read statutes.

Byron R. White:

Yes, well, better than — better than the District Court.

Warren E. Burger:

I hope so.

John L. Warden:

In this case, yes, Mr. Justice White.

Byron R. White:

As a matter of state law, as a matter of state law.

John L. Warden:

In this particular instance, yes, Your Honor.

Byron R. White:

So you —

John L. Warden:

But I might — but I might add, Mr. Justice White, that —

Byron R. White:

You’re suggesting you should lose on that part of the case?

[Laughter]

John L. Warden:

No, I’m not suggesting we should lose on that part of the case.

I’m going to get to another aspect of that statute in just a moment, but the decision below need not be affirmed on that basis if this Court construes the statute not to operate as it may have been thought to operate by the District Court.

There will, nonetheless, remain, the effect of 660.10 on Bankers Trust’s New York subsidiaries which conduct a large trust business and are precluded by that statute from themselves acting as an executor or testamentary trustee even without a local office.

John L. Warden:

Other Florida resident, even when named in his will as such.

Now, this result, I don’t think, can be justified —

Byron R. White:

Well, I’d — I’d — perhaps I understood Dean Griswold that — didn’t he suggest that this statute didn’t prevent an outside executive from himself doing business across the state line?

John L. Warden:

I didn’t hear —

Byron R. White:

Well, I —

John L. Warden:

— Dean Griswold suggest that.

The statue contains —

Byron R. White:

I’ll — I’ll —

John L. Warden:

— some exceptions —

Byron R. White:

He speaks for himself or rely on the transcript.

John L. Warden:

But it says in the first paragraph [Laughs] that only local incorporated banks and trust companies and national banking —

Byron R. White:

Right.

John L. Warden:

— associations having trust powers may do the following within this State —

Byron R. White:

I suppose —

John L. Warden:

— and that includes acting as a trust of (Voice Overlap) —

Byron R. White:

I suppose if 660.10 —

John L. Warden:

— trustee.

Byron R. White:

— if that — if that provision had been construed to permit out-of-state corporations directly to give investment advice in a State either through a local office or — or without a local office on the telephone or by mail, the District Court might have had a different idea about an — the — about the other statute because there might be a way where — that this wouldn’t — if they could be business this way, it wouldn’t be so burdensome under state commerce.

John L. Warden:

I don’t think that 660.10 can be read as dealing with anything other than a requirement of local incorporation.

I don’t think it can possibly be read to permit out-of-state corporations from doing the very businesses it says they can’t do.

Byron R. White:

Yes.

John L. Warden:

And even if it were so read, as I mentioned a minute ago, 659.141 of its own force by its plain language, prevents the doing of these businesses in Florida by out-of-state holding companies either directly or through local subsidiaries.

Potter Stewart:

As you read 660.10 simply as requiring that an executor or administrator or these other named officers be local, that is an incorporation — incorporated or qualified in — in Florida, is not too unusual a provision, is it?

Don’t — don’t many States in their probate law or decedent’s estates laws require that the guardian or the administrator of a decedent’s estate be a local corporation or a local resident?

John L. Warden:

Mr. Justice Stewart, there are approximately 10 or so such statutes still in existence as —

Potter Stewart:

Yes, you mean 10 or more States.

John L. Warden:

— as point — yes.

Potter Stewart:

Yes.

John L. Warden:

As pointed out in the Conference of State Supervisors’ brief.

Potter Stewart:

Right.

John L. Warden:

There are fewer now than there were in years past.

And I might say that in Fain v. Hall, a District Court decision in Florida last year, 463 F.Supp. 661, the District Court struck down the Florida statute that limited to close relatives out-of-state individuals who could act as fiduciaries in Florida basing its decision not on the privileges and immunities rights of the fiduciaries but on the basic and fundamental right of the testator to name his own fiduciaries.

Potter Stewart:

And there you say that was a — one of the District Court?

John L. Warden:

Yes, and that was not appealed by the State.

Potter Stewart:

But —

William H. Rehnquist:

What — what can a prior constitutional provision did the —

Potter Stewart:

Yes.

William H. Rehnquist:

— District Court rely on in that case?

John L. Warden:

The Due Process Clause, Your Honor.

Potter Stewart:

Of what?

William H. Rehnquist:

What — what, life, liberty, property?

John L. Warden:

Yes.

The — the District Court said that selecting a fiduciary to manage one’s property was a fundamental part of human liberty protected by the Due Process Clause.

Potter Stewart:

And that this had been taken away without due process of law?

John L. Warden:

Yes.

It also found —

Potter Stewart:

(Voice Overlap) versus New York.

John L. Warden:

— a classification, an arbitrary one —

Potter Stewart:

Although it was — it was legislation enacted by the state legislature.

John L. Warden:

That’s correct.

Potter Stewart:

And that’s a due process of law?

John L. Warden:

That’s correct.

That was the holding.

Byron R. White:

Would you suggest that — suppose the — suppose the District Court had — had stricken down 660.10 and then said, “We needn’t reach the other section,” would you —

John L. Warden:

659.141, they would have to reach, Mr. Justice White —

Byron R. White:

Well, because that caused the —

John L. Warden:

— because that — that covers both business, investment advisory and trust and of its own force considered apart from 660.10, keeps Bankers Trust from doing business in Florida (Voice Overlap) —

Byron R. White:

In — in any form?

John L. Warden:

In any form.

Byron R. White:

Across state line by telephone, by letter?

John L. Warden:

No, no, no, no.

I beg your pardon.

Prevents their maintaining a local office.

Byron R. White:

That is right.

Right.

John L. Warden:

That’s correct.

Byron R. White:

But it could still do business across a state line?

John L. Warden:

Yes.

Byron R. White:

As far as that section is concerned.

John L. Warden:

It doesn’t — doesn’t preclude their using the telephone or sending people down by airplane.

Byron R. White:

Or acting as trustee.

John L. Warden:

No, I do not believe it does, Your Honor, 660.10 does that.

Byron R. White:

Yes, exactly.

John Paul Stevens:

Mr. Warden, can I still — I’m still a little puzzled about the two — the two statutes.

Assuming we hold the first statute from the District Court on the first statute, has the second statute hurt your — because — your client, I mean the — the appellee here in anyway because they haven’t tried to form a subsidiary or have they?

In entering —

John L. Warden:

No, it has been stipulated that but for 659.141 and 660.10 if considered of its own force to have that effect.

Bankers Trust would apply to — or to incorporate a local subsidiary.

John Paul Stevens:

And if — and if we read 660.10 the way you suggest the plain language indicates, there’s no harm to the client, no reason to reach the constitutionality of a statute which says you’ve got to be locally incorporated.

John L. Warden:

That is correct as to the principal issue tried below which was Bankers Trust attempt to open local offices in Florida.

John Paul Stevens:

Right.

John L. Warden:

That statute will, however, continue of its own force to prevent Bankers Trust’s New York operating subsidiary.

John Paul Stevens:

But there’s no evidence they’ve ever tried to do anything themselves, isn’t it?

John L. Warden:

There is not, Your Honor.

There is, however, stipulation that the enforcement of the statutes and each of them has caused Bankers Trust New York Corporation economic injury.

John Paul Stevens:

You think that’s enough to require us to face that the constitutionality of the statute that says in order to engage in trust business, you got to be locally chartered?

I — well —

John L. Warden:

Well, that’s — that’s the state of the record, Mr. Justice Stevens.

Now, if I may — may proceed with the basic constitutional point.

The statutes that Florida here seeks to sustain, a fact on their face, a simple economic protectionism that the Court held invalid per se two terms ago in Philadelphia v. New Jersey.

John L. Warden:

Florida has not sought by these statutes to regulate bank holding companies in a way that is evenhanded on its face but in operation discriminates against interstate firms.

The so-called regulation here in issue affects only firms not based in Florida, and it does not regulate them.

It prohibits them absolutely from providing the services in question in Florida.

The Exxon case upon which the opponents place their principal reliance simply does not stand for the proposition that the Commerce Clause allows a State to exclude some but not all out-of-state firms as out-of-state firms.

The barrier in Exxon was not against interstate firms but against vertically integrated firms, Maryland-based or otherwise.

This Court expressly noted, 437 U.S. at 126 that Maryland statutory scheme did not “distinguish between in-state and out-of-state companies in the retail market”.

Florida statutory scheme and start contrast does nothing but distinguish between in-state and out-of-state companies in these markets.

Florida has acted not to preclude the doing of certain business by bank holding companies but to preclude out-of-state bank holding companies from doing business in Florida.

Secondly, Hughs against Oklahoma did not overrule or limit Philadelphia against New Jersey.

It cited the case with approval.

And as our brief’s note, the first point of the Hughs three point test incorporates the holding of Philadelphia and says that at the very least in the case of a statute discriminating on its face, the State has the burden to justify under strict scrutiny a non-discriminatory local purpose in the absence of non-discriminatory alternatives, Florida has done neither.

As to the supposed need to protect the people of Florida from some undefined menace of large financial companies, it is sufficient just to say that the statutory scheme does not even make a pretense of doing so.

Byron R. White:

But doesn’t — doesn’t the statutes single out banks at least —

John L. Warden:

It singles out bank holding companies.

Byron R. White:

(Voice Overlap) —

John L. Warden:

Yes, out-of-state bank holding companies.

Byron R. White:

Yes, exactly but it doesn’t single out other kinds of out-of-state companies, holding companies or otherwise.

John L. Warden:

No, no.

But —

Byron R. White:

Doesn’t —

John L. Warden:

— as for our argument, Mr. Justice White, is that under the decisions of this Court, Florida is required to treat similarly situated local corporations and out-of-state corporations similarly unless it justifies under strict scrutiny some legitimate non-protectionist reason for doing so.

Byron R. White:

Well, what about in Exxon, out-of-state — out-of-state companies that weren’t refiners but who are engaged in the distribution of gasoline, could own local stations?

John L. Warden:

That’s correct, Mr. Justice White —

Byron R. White:

So the only —

John L. Warden:

— the statute there in question —

Byron R. White:

They didn’t pick out refiners.

John L. Warden:

Picked out refiners.

This statute doesn’t pick out bank holding companies, it picks out-of-state bank holding companies.

Florida permits the holding company form of commercial organization —

Byron R. White:

Well, the matter just so happened that every — possibly, weren’t any local refiners in Maryland.

John L. Warden:

That’s entirely correct but the Court —

Byron R. White:

So it just picked out out-of-state refiners?

John L. Warden:

That’s a lesser included part of the class of —

Byron R. White:

That’s included in your (Voice Overlap) —

John L. Warden:

— refiners and you’re saying that as a matter of fact, it was the entire class but that needn’t remain so in the statute on its face attached no significance to being an interstate form or —

Warren E. Burger:

But it wasn’t —

John L. Warden:

— an out-of-state form.

Warren E. Burger:

— it wasn’t the entire class of out-of-state, however, there were some out-of-state retailers —

John L. Warden:

Non-refiners.

Warren E. Burger:

— and distributors who did not produce or refine.

John L. Warden:

Yes, who were permitted to continue to operate as — as the Court said.

As I quoted a minute ago, the statute does not distinguish between in-state and out-of-state dealers in the retail market.

This statute does distinguish between in-state and out-of-state bank holding companies —

Byron R. White:

It isn’t — it isn’t —

John L. Warden:

— on that basis.

Byron R. White:

It isn’t a regulation of banking and the sense — because it doesn’t affect local banks.

John L. Warden:

No.

It’s a preclusion of the doing of interstate commerce.

John Paul Stevens:

Well, if you —

John L. Warden:

The protection here — yes, sir.

John Paul Stevens:

If your argument is valid, a State which did not permit bank holding company type of operation could do what Florida is trying to do here.

John L. Warden:

That is a much stronger case for the State, Mr. Justice Stevens, but I would submit that is not this case.

John Paul Stevens:

If that —

John L. Warden:

But I would submit that in such a situation, if local banks were allowed to engage in the trust and investment advisory businesses, the sole effect of such a statute would be to preclude out-of-state competition in the trust and investment advisory businesses which Congress has recognized are not the business of banking and therefore are not within the consent it’s given to the States to exclude multi-state banking.

John Paul Stevens:

But under — if I understood Mr. —

John L. Warden:

That is not this case.

John Paul Stevens:

If I understand Mr. Griswold correctly, so what you should look at is not just out-of-state banks or bank holding companies but all out-of-state concerns that want to enter the investment advisory service market.

And as in — in Exxon, you look at the whole investory side — advisory service market and say keeping out a few New York banks isn’t going to — its no proof that will affect that market because there’s Paine Webber and others who may come in.

If I — that’s what I understood his argument.

John L. Warden:

Well, there’s — there’s no evidentiary record to support the contention that this has a de minimis effect and the State had the — the burden of establishing that, given the discrimination on the face of the statute.

John L. Warden:

But in any event, I don’t think that’s the Commerce Clause test under this Court’s decisions.

I think that the Commerce Clause requires the — like in-state firms be treated the same as like out-of-state firms.

Byron R. White:

Do you say — do you say that in Exxon, if Maryland had said local refiners, if there were some, may own stations but out of — out-of-state refiners may not.

John L. Warden:

That would have been stricken by this Court —

Byron R. White:

That’s this case.

That’s this —

John L. Warden:

— (Voice Overlap) this case.

Byron R. White:

Yes.

John L. Warden:

Now, the kind of rationalizations presented here by Florida support this statute were rejected.

I hope once and for all, when Mr. Justice Cardozo said in Baldwin against G. A. F. Seelig, 294 U.S. at 523 “to give entrance to that excuse would be to invite a speedy end of our national solidarity”.

The Constitution was framed under the dominion of a political philosophy less parochial in range.

Now, I’d like to turn to the contention that Congress has consented to this discrimination.

The meaning of Section 3 (d) is clear on its face.

That’s the first of the provisions of the Bank Holding Company Act to which Dean Griswold referred.

It precludes acquisition by holding companies of banks across state lines absent affirmative legislative consent by the affected State.

In Section 2 (c) of the Act, Congress has defined a bank in accordance with common understanding to be an institution that accepts demand deposits and makes commercial loans.

Byron R. White:

Where — where are you reading?

John L. Warden:

At Section 2 (c) of the Public —

Byron R. White:

But is — is that in the —

John L. Warden:

— Bank Holding Company Act.

Byron R. White:

What — is that Appendix C or D or —

John L. Warden:

That’s going to be — I haven’t printed it in there.

Potter Stewart:

In your brief.

Byron R. White:

The section please.

John L. Warden:

Sorry.

That wasn’t printed as one of the statutes involved in the appendix —

Byron R. White:

You suggested it in your brief.

John L. Warden:

— Mr. Justice White.

That is — is printed at pages 15 and 16 of our brief on the merits of December 19, the yellow —

Byron R. White:

Right, I got it.

John L. Warden:

— brief.

I believe you have —

Byron R. White:

Yes.

John L. Warden:

— the appellees’ brief there.

Byron R. White:

Oh, that’s right.

John L. Warden:

This is at the Clearing House brief at pages —

Byron R. White:

Oh, yes.

You’re not an appellee.

John L. Warden:

— 15 and 16.

Byron R. White:

You’re also a standard —

John L. Warden:

That’s correct, Your Honor.

And now, this case, as I said at the outset, doesn’t involve the organization or acquisition of a bank by anyone, anywhere.

Indeed, that definition was amended by the Congress in 1966 to read as it — well not quite as it now reads.

It was amended again in 1970 but it was specifically amended in 1966 to remove non-deposit trust companies, which is what we’re concerned with here.

It never included investment advisory organizations.

And the reason it was removed — and it was amended to remove non-deposit trust companies, as stated in the Senate Report on the 1966 amendments at page 7 as follows, “The purpose of the Act was to restrain undue concentration of control of commercial bank credit and to prevent abuse by holding company of its control over this type of credit.”

Then paraphrasing, the certain institutions which are included now need not be included to achieve that objective, therefore, we are redefining bank to exclude institutions like non-deposit trust companies.

Now, I see that my time’s up.

I have two brief additional points, if I may, Mr. Chief Justice.

Warren E. Burger:

You can complete it in one minute.

John L. Warden:

Thank you.

Section 4 to which Dean Griswold referred confers no powers on any State.

That is a Section that confers on the Federal Reserve Board, the power to improve transaction such as the one that Bankers Trust wishes to engage in.

Section 7, on which he also relies, is on its face, a negation of affirmative preemption.

It is not a consent to the exercise of otherwise unconstitutional state legislative powers.

It says this Act shall not be construed or preempted.

It doesn’t say the Commerce Clause shall not be construed.

Byron R. White:

Let me ask you, if this — if — if the holding company here, if the New York holding company had wanted to acquire a bank in Florida, you would agree Florida could keep it out?

John L. Warden:

Florida is empowered under this — under the —

Byron R. White:

Even if —

John L. Warden:

— bank holding —

Byron R. White:

— even if Florida holding companies may own banks?

John L. Warden:

Yes.

In fact —

Byron R. White:

Yes.

John L. Warden:

— a holding company is a bank holding —

Byron R. White:

Yes.

John L. Warden:

— company only because it —

Byron R. White:

Exactly.

John L. Warden:

— owns a bank.

Byron R. White:

Yes, exactly.

John L. Warden:

But Congress has in the Bank Holding Company Act given not just to consent to such state legislation, it has itself affirmatively declared.

Byron R. White:

That’s right.

And so —

John L. Warden:

But it —

Byron R. White:

— so — so that — so Florida may — has a choice of either discriminating against foreign holding companies or not?

John L. Warden:

That’s right.

With — no — no — no.

Congress has already affirmatively prohibited multi-state bank acquisitions by bank holding companies —

Byron R. White:

If state law permits —

John L. Warden:

— absent an affirmative state legislative —

Byron R. White:

Alright.

John L. Warden:

— consent to that action.

Byron R. White:

Florida — Florida could permit it or it may prevent it.

John L. Warden:

For — as far as the business of banking is concerned —

Byron R. White:

Exactly.

John L. Warden:

— Congress has not granted that permission as far as any other business is concerned.

Byron R. White:

Yes, I understand.

John L. Warden:

— Mr. Justice White.

Thank you.

Byron R. White:

Thank you, gentlemen.

The case is submitted.

We’ll hear arguments next in —